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BB0022

BB0022

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Published by Rajesh Singh

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Published by: Rajesh Singh on Jun 16, 2011
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05/15/2013

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BB0022: Capital and Money MarketAssignment Set – I
Note: Each question carries 10 Marks. Answer all the questions.
Q.1. What are the methods of raising capital using the new issues market ? Withinprivate placement what are the new methods like QIBs etc. Methods used for raising capital
i)
Public Issue by Prospectus:
Companies Act defines prospectus as “any documentdescribed or issued as a prospectus and includes any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for thesubscription or purchase of any shares in, or debentures of, a body corporate.” Theprospectus is the basis on which the prospective investors form their opinion and takedecisions as to the worth and prospects of the company. Legally no public limited companycan raise capital from the public without issuing prospectus.ii)
Offer for Sale:
Under this method, a third party having taken over a large block of company’s securities, offers these publicly at a fixed price. Under this method, the companydoes not receive any new amount nor is any new capital asset created. Any premiumcharged to the public goes to the offerers than to the company.iii)
Private Placing:
When capital is provided by the finance companies, not in the form of an ordinary loan but by the purchase of an issue of debentures or shares can be called asprivate placing.iv)
Rights Issue:
Under this method new shares are offered to the existing shareholders.The rights issue is an offer with a pre-emption right to the existing shareholders of thecompany to further contribute to its share capital. New shares are offered to the existingshareholders in certain proportion to their existing share ownership. However the rightsthemselves are transferable and saleable in the market. Under the companies Act, where acompany increases its subscribed capital by the issue of new shares either after two years of its formation or after one year of the first issue of shares, whichever is earlier, these have tobe first offered to the existing shareholders with a right to reserve them in favour of anominee.
v)
Book Building:
Book building helps the private placement of big premium issuesby
For completed assignment visitwww.studenthelp.tk
 
Q.2. What are the reasons for buyback of shares? Which companies have done buyback recently.BUY BACK OF SHARES
Buy back of shares means re-purchases by a company of its own shares. The company maydo so either for reducing share capital or for treasury operations. The reduction in sharecapital implies extinguishing of shares, which have been brought back by the company.Under the treasury operations, the acquired stock can be issued at a later date or for employees option.
 Reasons for buyback of shares
i)
To return surplus cash to the investors:
Eventhough the share repurchases anddividends are close substitutes in many respects, this share repurchases are not expected tobe replaced on a regular basis. The share buy backs have a clear advantage for thecompany over cash dividends. Cash dividend attracts dividend tax, while the investmentescape a tax liability. Thus the companies prefer buy back in order to minimise their tax outgo.ii)
To increase the share value:
The process of buying back and extinguishing the sharesby a company brings about a decrease in equity and consequently, leads to an increase inthe earnings per share (EPS) of the company. It is presumed that the market price of thescrip will rise proportionately to maintain the price to the earning (P/E) ratio at the pre-buyback level. A share buy back may also be announced to support share price during periodsof temporary weakness.iii)
To achieve or maintain a target capital structure:
The buy backs provide flexibility tocorporate entities to alter their capital structure and financial position. Buy-backs aid acompany in achieving an optimum debt equity ratio, especially when its equity isproportionately large.
 
iv)
To prevent hostile take over bids:
The buy back will lead to a decline in liquidity andincrease in share prices, which will make a take over operation difficult. The impact of buy-back in eliminating surplus cash makes companies less succeptible to hostile take overs.
 
A company is allowed to buy back subject to following conditions.
For completed assignment visitwww.studenthelp.tkQ.3. Select a company and identify the reasons for price fluctuations in the past oneyear.CAUSES OF PRICE FLUCTUATIONS

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